George Osborne recently announced 'funding for lending' - an acknowledgement that QE is reaching the limits of its effectiveness. Photograph: Pa

"Quantitative easing" has become such a familiar phrase over the past three years that it now seems like a standard part of the Bank of England's equipment – giving the "one club golfer", as Ted Heath once dubbed anyone trying to guide the economy using interest rates alone, one more club.

But before the days of the financial crisis, QE was seen as a drastic emergency measure, which only Japanese policymakers had used on a large scale in recent times, to little avail, as their economy slumped into a "lost decade" of deflation and recession.

Make no mistake: this latest £50bn-worth of electronically created money being pumped into the financial system is a sign of deep desperation, not a simple chip out of the rough.

As the Bank said in the statement that accompanied its decision to expand QE to an eye-popping £375bn, this is an economy that had failed to grow for the past 18 months, and has now slipped into recession – and the headwinds are getting worse.

Last week's eurozone summit in Brussels may have been greeted with a great fanfare as a sign that Germany was prepared to make solid moves towards standing behind its troubled partners' debts.

But as the dust has settled, there have been growing doubts about whether the deal Italy and Spain thought they had wrung from Berlin was as good as it first appeared. The Bank of England monetary policy committee certainly does not seem convinced: as it said, "in spite of the progress made at the latest European council, concerns remain about the indebtedness and competitiveness of several euro-area economies, and that is weighing on confidence here".

Meanwhile, the recovery in the US seems to be grinding to a halt; and the anxious Chinese authorities are cutting interest rates to avoid a so-called "hard landing".

It is not quite the global loss of nerve that followed the collapse of Lehman Brothers in late 2008 and early 2009; but there is no doubt that there is a deep malaise in many of the UK's major markets.

Given that one of the few sources of hope for the clapped out British economy was a jump in exports, that is very bad news.

At home, meanwhile, whether or not George Osborne's slash and burn approach to restoring the public finances caused the double-dip, the further belt-tightening that is due over the next couple of years certainly will not help boost growth.

The collapse in construction as orders for taxpayer-funded schools and public projects have dried up, and which has been a key cause of the latest downturn in GDP, is just one example of the coalition's fiscal tightening leeching demand out of the economy.

And while it is re-starting QE, the Bank is also working with the Treasury to launch a battery of other emergency measures, including the "funding for lending" scheme announced by George Osborne in the Mansion House speech – a clear acknowledgment that QE is reaching the limits of its effectiveness.

So the real message to take from the Bank's decision on Thursday is not, "don't panic," but, "be very afraid". King knows very well that this is an economy that's buried deep in a bunker.